Economic Systems Flashcards
Define economic sytem
An economic system refers to the structure and methods a society uses to make decisions about the production, distribution, and consumption of goods and services.
Define command economic
A centrally planned / socialist / command economy is one where resources are owned centrally and allocated by the state or central planning committee
Define command economic
A centrally planned / socialist / command economy is one where resources are owned centrally and allocated by the state or central planning committee
What are the features of command economics
Ownership and control of economic resources is by the government.
•The allocation of resources is under a central planning authority.
•Social welfare maximization is the major motive of production.
•Economic decisions are handled by the central planning authority. This
What are the advantages of command economics
A command economic system, where the government makes most or all economic decisions, has several advantages:
- Efficient resource allocation for national goals: The government can prioritize and direct resources towards specific sectors (e.g., defense, infrastructure, or education) to achieve national objectives or address critical needs.
- Reduced inequality: Since the government controls production and distribution, it can ensure that wealth and resources are distributed more evenly, potentially reducing income inequality.
- Stability and predictability: With the government controlling the economy, there is less fluctuation in prices, employment, and production, leading to more stability and predictability.
- Prevention of monopolies: In a command economy, the government can prevent private monopolies from forming, ensuring that no single entity has too much control over essential resources or services.
- Ability to mobilize resources quickly: In times of crisis, a command economy can efficiently redirect resources to address immediate needs, such as during wartime or natural disasters.
What are the advantages of command economics
A command economic system, where the government makes most or all economic decisions, has several advantages:
- Efficient resource allocation for national goals: The government can prioritize and direct resources towards specific sectors (e.g., defense, infrastructure, or education) to achieve national objectives or address critical needs.
- Reduced inequality: Since the government controls production and distribution, it can ensure that wealth and resources are distributed more evenly, potentially reducing income inequality.
- Stability and predictability: With the government controlling the economy, there is less fluctuation in prices, employment, and production, leading to more stability and predictability.
- Prevention of monopolies: In a command economy, the government can prevent private monopolies from forming, ensuring that no single entity has too much control over essential resources or services.
- Ability to mobilize resources quickly: In times of crisis, a command economy can efficiently redirect resources to address immediate needs, such as during wartime or natural disasters.
What are the disadvantages of command economic system
The disadvantages of a command economic system include:
- Inefficiency: Without competition, there is little motivation for innovation or improving productivity.
- Limited consumer choice: The government controls what is produced, leading to fewer product options.
- Misallocation of resources: Central planning may not align with actual demand, causing shortages or surpluses.
- Lack of incentives: Workers and businesses have less motivation to improve or innovate, as profit and personal reward are minimized.
- Bureaucracy and corruption: Centralized control can lead to excessive red tape and opportunities for corruption.
- Restricted individual freedom: People have less freedom to make their own economic choices, limiting personal and business autonomy.
Define traditional economic system
An economic system in which economic decisions are based on customs and beliefs
Advantages of traditional economy system
The advantages of a traditional economic system are:
- Simplicity: It relies on established customs, making it easy to understand.
- Sustainability: Uses natural resources in a way that preserves them for the future.
- Community-focused: Encourages cooperation and strong social ties.
- Stability: Customs provide a stable and predictable way of life.
- Low environmental impact: Minimal disruption to the environment.
What are the disadvantages of traditional economic system
The disadvantages of a traditional economic system include:
- Limited growth: Economic development can be slow due to reliance on outdated methods.
- Lack of innovation: Traditional practices may not adapt well to new technologies or ideas.
- Inefficiency: Methods and processes may be less efficient compared to modern systems.
- Economic vulnerability: Dependence on agriculture or specific resources can make economies vulnerable to environmental changes or market fluctuations.
- Restricted individual freedom: Economic roles and opportunities are often predetermined by tradition, limiting personal choice and advancement.
Define mixed economy
Businesses own most resources and determine what and how to produce, but the government regulates certain industries
What are advantages of mixed economy
The advantages of a mixed economy include:
- Balance between freedom and control: Combines the benefits of both market and command economies, allowing for personal freedom in business while ensuring government regulation to correct market failures.
- Efficient resource allocation: The market mechanism helps in efficiently allocating resources, while government intervention can address inequalities and provide public goods.
- Encourages innovation and competition: The presence of private enterprises fosters competition and innovation, driving economic growth.
- Social welfare: Government involvement can help reduce inequality and provide social safety nets, such as healthcare and education.
- Stability: Government regulation can help mitigate economic fluctuations and provide stability during economic downturns.
Disadvantages of mixed economy
The disadvantages of a mixed economy are:
- Complexity: Balancing government control and market freedom can make the system complicated.
- Government overreach: Too much government control can limit business innovation and personal freedom.
- Inefficiencies: Government involvement can sometimes lead to waste and poor resource use.
- Market distortions: Government rules and subsidies can mess up market prices and supply.
- Conflicts of interest: Private and public interests may clash, affecting fair decision-making.
Define market economics
A market economy is an economic system where decisions about production, investment, and distribution are guided by the interactions of citizens and businesses in the marketplace.
What are advantages of market economy
The advantages of a market economy include:
- Efficiency: Resources are allocated based on supply and demand, leading to efficient production and distribution.
- Innovation: Competition encourages businesses to innovate and improve products and services.
- Consumer Choice: A wide variety of goods and services are available, allowing consumers to choose according to their preferences.
- Economic Growth: The profit motive drives businesses to expand and grow, contributing to overall economic development.
- Flexibility: The market can quickly adapt to changes in consumer preferences and economic conditions.
